Understanding the FLSA’s New Salary Test

The Fair Labor Standards Act (FLSA) sets minimum wage and overtime requirements for employees. The overtime requirement requires employers to pay at least one-and-one-half times the hourly rate of the employee for each hour the employee works over 40 hours in a regular work week.

However, certain employees may be exempt from the overtime requirements if they qualify as meeting three tests:

1. Job Duties Test;
2. Salary Level Threshold Test, and
3. Salary Basis Test.

The FLSA does not define those tests. Instead, the U.S. Department of Labor (DOL) is directed to define the exemptions and modify criteria from time to time with regulations.

The Job Duties Test specifies certain duties that the employee must perform if the employee is to be classified as an executive, administrative, professional, outside salesperson, or a computer-related occupation. Additionally, highly compensated employees are also eligible if they fit within a specific job duty test. These employees must all meet the Salary Level Threshold Test and be paid a predetermined and fixed salary that is not subject to reduction (Salary Basis Test). Continue reading »

Contracts: The Importance of “Boilerplate” Clauses

In business, the word “boilerplate” is often a negative term. However, common contractual clauses, or “boilerplate” clauses, are often significant and helpful. They should not be overlooked or dismissed.

Attorneys’ Fees and Expenses

One common boilerplate clause relates to an aggrieved party’s ability to recover attorneys’ fees and expenses that they have incurred as the result of the other party’s breach of contract. Generally, U.S. courts follow the “American Rule,” which means that each party to a lawsuit will bear their own attorneys’ fees and costs, regardless of the outcome of the case. A common boilerplate clause allows for such an aggrieved party to recover the attorneys’ fees and costs that they have incurred because of the other party’s breach of contract.

Notably, the presence of such an attorneys’ fees clause can be particularly helpful even in cases of lesser value. For example, one party to a contract owes the other party $10,000 and refuses to pay. Employing an attorney to file suit to recover that $10,000 will be very expensive relative to the amount that might be recovered. In fact, if there is any complexity to the case, then hiring an attorney can quickly become prohibitively expensive – without an “attorneys’ fees” clause.

Providing Notice

Clauses relating to the methods for providing “notice” to the parties can also be helpful and significant.  They can determine to whom notice must be given, how the notice must be given, or when the notice is deemed given.

State Law Applied/State for Litigation

Often transactions or agreements will span multiple states. In such cases, helpful clauses include determining which state’s law will apply or in which state the dispute will be litigated. Continue reading »

Employee or Independent Contractor Classification under the Fair Labor Standards Act Effective March 11, 2024

The U.S. Department of Labor (DOL) has modified the Wage and Hour Division Regulations to replace its 2021 analysis for determining whether a worker is an employee or independent contractor (Final Rule). The previous test gave greater weight to control and opportunities for profit and loss.

Effective March 11, 2024, under the Final Rule the employee or independent contractor classification determination will focus on the economic realities of the worker’s relationship and whether the worker is either economically dependent on the potential employer for work or is in business for himself. In short, is the worker dependent upon the business to which it renders services for work?

Economic dependence does not focus on the amount of income the worker earns, but rather whether the worker has other sources of income from other customers. To determine economic dependence, the DOL assesses seven factors and conducts a totality-of-the-circumstances analysis. No one factor carries more weight. The DOL looks at the working relationship, the workplace, and the particular industry.

Under the Final Rule, Section 795.105, DOL, uses the following tools and/or factors in its determination: Continue reading »

CTA Reporting Requirements Have Begun!

Reporting requirements for affected entities under the Corporate Transparency Act (“CTA”) went into effect January 1, 2024. In our article “Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!,”  we provided detailed information on the CTA’s applicability and reporting requirements. Now that the CTA is in effect and entities must report beneficial ownership, let’s take another look.

The Facts About the CTA

• The CTA is a bipartisan act passed in 2021 by Congress to create a beneficial ownership information reporting requirement because many states, including Missouri, do not have requirements in place to collect beneficial ownership information of certain entities. An estimated 32.6 million entities are affected by the CTA.
• For entities already in existence prior to January 1, 2024, that do not qualify for any of the 23 exemptions available, Beneficial Ownership Interest (“BOI”) Reports are due by December 31, 2024.
• New entities formed in 2024 are subject to a 90-day BOI Report filing deadline (extended from the original 30-day deadline). Entities formed January 1, 2025, or later are subject to a 30-day BOI Report deadline.

How and What Does an Entity File?

• An entity can file its own report – at no cost – on the Financial Crimes Enforcement Network (“FinCEN”) website at https://boiefiling.fincen.gov/fileboir.
• Required information to be filed for an entity includes the legal entity name, any trade names or dbas, the principal place of business address, and all taxpayer-identification numbers issued to the entity.
• Owners of at least 25% of interest in the entity and those with substantial control of the entity must report their legal name (including middle name), home address, date of birth, unique identifying number from an accepted identification document (generally a state-issued driver’s license or passport), name of the state or jurisdiction of the identification document, and an image of the identification document.

Who Has Access to Filed Information?

• FinCEN’s database of entities will not be freely accessible to the public.
• Federal, state, local, and tribal officials, as well as certain foreign officials, may submit a request for information for authorized activities related to national security, intelligence, and law enforcement. If a reporting company consents, certain financial institutions may be granted access in certain circumstances. For more information on access, please visit FinCEN’s website at https://fincen.gov/boi.

Cue the Scammers Continue reading »

What to Do If You Might Have Been Ineligible for the Employee Retention Tax Credit Claim

The COVID-19 Pandemic was cause for many new programs to be created by the U.S. government to keep businesses afloat and employees retained in unprecedented times. One of these programs was the Employee Retention Tax Credit (“ERC”) which incentivized employers to retain employees while business was down. The program was available regardless of the size of the employer and included tax-exempt organizations.

To be eligible for the ERC, employers had to (1) be either fully or partially suspended by government order due to COVID during the calendar quarter or (2) have gross receipts below 50% of the comparable quarter in 2019.

The IRS began sending out letters in December 2023 to more than 20,000 taxpayers who received disallowed ERC claims. Letter 105 C, Claim Disallowed is being sent to a first group of taxpayers because the entities either (1) did not exist during the eligibility period (March 13, 2020, through December 31, 2021), or (2) did not have paid employees during the ERC’s applicable time period (ERC is a credit against qualified wages).

Letter 105 is being sent out to taxpayers prior to payment in an effort by the IRS to help ineligible taxpayers avoid audits, repayments, and penalties. Many employers were encouraged to file ERC claims by “promoters” who received monetary commissions based on approval. Issuance of a disallowance letter prevents promoters from receiving funds to which they are not entitled. Continue reading »

Five Common Mistakes Business Owners Make When Organizing an LLC in Missouri

1. Not Having an Operating Agreement

An Operating Agreement (“OA”) is a crucial document that establishes the ownership of the LLC, the rights and duties of the company’s members and managers, and the operating rules for the company. While the OA is not filed with the Missouri Secretary of State (“SOS”), it is required by law. Without an OA, your LLC runs the risk of losing its limited liability protection and the members of the LLC could be held personally liable.

2. Not Updating the Operating Agreement

The OA establishes the ownership of the LLC, how the LLC conducts its business, and how it is taxed.  There are several ways for an LLC to be taxed, including as a disregarded entity or an S-corporation.  Including this in the OA and acting in accordance with the OA are very important.  If tax status, ownership, or any other portion of the OA changes, it should be promptly amended to reflect the change(s).

3. Not Registering a Fictitious Name Used By the LLC

If an LLC transacts business in a name other than the legal entity’s name, that name must be filed as a fictitious name (also known as a “d/b/a” or “doing business as”) with the SOS. A fictitious name is any name business is transacted under other than the true name of the legal entity. For example, if the legal name of the LLC is “Flett Enterprises, LLC” and it owns a restaurant named “Andy’s BBQ,” the owner should register “Andy’s BBQ” as a fictitious name. If not, the owner(s) risk personal liability for operating “Andy’s BBQ” in their individual capacity. Continue reading »

Planning for the Incapacity or Death of a Business Owner

As a business owner, you are used to making plans. You have had to make plans since day one – plans to get your business off the ground, plans to increase inventory, plans to take on employees. . . plans, plans, plans. One plan that some business owners don’t think about until it’s too late is what happens to their business at the death of one of the owners.

Not planning is, in fact, a plan. If no documents are in place to transfer ownership at death, the deceased owner’s probate estate is the recipient of the business interests and the business is tied up in probate court. How can you avoid this happening to your business?

First, check your corporate governance documents. Depending on the type of entity you own, this could be your operating agreement, shareholder agreement, bylaws, or a buy-sell agreement. These documents could outline any restrictions on the transfer of ownership interests. Some of the more common transfer restrictions are to other members or shareholders, revocable trusts, or family members.

Typically, two of the simpler ways to transfer ownership interest in an entity is to assign the interest during the owner’s life to a revocable trust or, alternatively, assign the interest at the death of the owner to the owner’s trust. The terms of the trust can then control where the ownership goes, how it gets to the desired beneficiaries, and who is in charge. Make sure to update operating agreements or bylaws to reflect those changes any time an assignment of ownership occurs. Assignments of ownership interests at death can also be made to other individuals provided the terms of the entity’s operating agreement or bylaws allow for this transfer. Continue reading »

Advantages of the Single-Member LLC and the Disregarded Entity Rules

The limited liability company (LLC) is a relatively modern invention that has grown rapidly in popularity and for good reason. Generally, an LLC is a business entity that is legally distinct and separate from its owners, or rather its members.  As a result, the LLC provides its members with significant protection from liability to third parties, like a traditional corporation provides to its shareholders.

However, the LLC has some advantages over the corporation, including :

• An LLC is generally subject to less administrative requirements than a corporation.
• An LLC may elect to be taxed as a partnership, corporation, or s-corporation.
• An LLC that is wholly owned by a single member may be treated as a “disregarded entity” for federal income tax purposes.

What are the benefits of a disregarded entity?

• A disregarded entity will not need to file a separate income tax return because its income or loss will pass-through to its sole member.
• A single-member LLC that is not taxed as a corporation, has no employees, and is not subject to excise taxes does not even need to apply for a separate Employer Identification Number (EIN).[1] Instead, such a disregarded entity may use the taxpayer identification number of its sole member. However, if another party, such as a bank, insists that the disregarded entity provide its own EIN, then the disregarded entity may obtain one for convenience.

Continue reading »

Be Sure You’re Ready: The Corporate Transparency Act is Coming Soon!

To help combat money laundering, prevent financing of terrorism and drug and human trafficking, and deter securities fraud among other illicit activities, January 1, 2024, will usher in the new reporting requirements for most small and closely held businesses. Courtesy of the Corporate Transparency Act (CTA) established under the Anti-Money Laundering Act of 2020, companies will be required to disclose beneficial ownership information to the Treasury Department’s Financial Crimes and Enforcement Network (FinCEN).

What does this mean for existing entities?

All domestic corporations, limited liability companies, and other entities created under state law and formed prior to January 1, 2024, will have until December 31, 2024, to report the required information to FinCEN.

Because the CTA aims to garner information on shell companies and entities with no or little operations, it provides 23 exemptions allowing an entity not to report. One such exemption is for operating companies that meet the following requirements: (1) employ more than 20 full-time employees in the U.S., (2) had more than $5,000,000 in gross receipts or sales as reported on the prior year’s IRS Form 1120, and (3) have an operating presence at a physical office in the U.S.

What does this mean for new entities?

New entities created on or after January 1, 2024, will have 30 days from actual notice of creation or after a secretary of state provides public notice of the entity’s creation or registration, whichever is earlier, to file the required reporting information.

Whose information is reported?

Individuals who directly or indirectly exercise substantial control over the entity, senior officials who have substantial control over a company, and individuals who own or control 25% or more of ownership interests are the Beneficial Owners who must disclose required information under the CTA.

What kind of information do Beneficial Owners have to report? Continue reading »

Why Your Business Needs Trademarks: Protecting Your Intellectual Property

Authored by Ruth Binger with assistance from Sarah L. Ayers, contributor

Trademarks are a vital aspect of intellectual property, offering unique proprietary rights with several advantages. Unlike other forms of property, a brand or trademark can remain valuable indefinitely with proper care. In fact, trademarks tend to increase in value with use. They can be sold or licensed, making them reasonably liquid assets. Additionally, trademarks serve as powerful marketing shortcuts, influencing consumer purchasing decisions for a company’s goods or services.

However, there are misconceptions surrounding the protection trademarks provide. Incorporating, qualifying to do business, or reserving the business name with various Secretary of State offices provides limited brand name protection. The right to exclude others from using a similar name on goods and services is not automatically granted. Conduct a thorough trademark search of any new corporation or LLC name used to identify a product or service to determine the availability of a mark for your specific purposes and ensure the name does not infringe on another entity’s trademark.

Trademark registration is not mandatory to establish a protectable and exclusive right to a mark. Registered trademark remedies are injunctions and damages, but often the only remedy for an unregistered mark is an injunction. Under common law, trademark rights can be obtained within a specific geographic area of use. State trademark registration does not offer protection beyond these rights. Continue reading »